The Canadian Manufacturer`s Association is predicting average wage settlements in all private sector industries to average about 2.5% with most agreements in the 1.7% to 3.2% range.

HOME PRODUCTS LTD. (2018)

Home Products Ltd. is a medium-sized organization located in an urban area of about 50,000 people known as New Halidart. The plant is unionized with the 250 employees being represented by the National Union of Labourers (NUL). The company manufactures a number of home furnishing products and is one of four Canadian firms in the industry. The other firms are located in Vancouver, B.C., Toronto, Ont. and Wolfmouth, a small town of about 10,000 people 48 miles from New Halidart. For the purposes of the simulation, assume that Nova Scotia laws apply.

Home Products Ltd. has been operating for about 35 years and the workers have been represented by NUL for 11 years. The last collective agreement, which provided for a wage increase of 0.8% in the first year and 1.1% in the second year of a two year contract, was below the industry average of 2.3% and 2.4% respectively. Unfortunately, Home Products has not conducted a product market wage survey recently. While labour relations between Home Products and NUL have been "acceptable" over the past two years, the relationship between the employer and union has been somewhat "adversarial" in nature. In addition, a militant faction within the union is calling for major increases in wages and benefits this year. In the words of one unionist, "we are sick and tired of falling behind each year".

Recent reports in the Financial Journal Post by industry experts indicate that Home Products is the most profitable firm in the industry but the average labourer at Home Products earns almost 7.5% less (in wages and benefits) than his or her counterpart employed by the competing firms in Toronto and Vancouver. However, the wage and benefit package at Home Products is about 5.6% higher than at the company located in Wolfmouth. In addition, Home Products is considered a high wage employer in the New Halidart area.

The Canadian Manufacturer`s Association is predicting average wage settlements in all private sector industries to average about 2.5% with most agreements in the 1.7% to 3.2% range. Inflation is projected to increase (annual rate of 2.8%) and Home Product’s sales are projected to increase 4.4% to $36,540,000.
Notes:

1. Last year the company had sales of $35 million, expenses of $33.95 million, and a profit of $1,050,000. This represented a return on investment of 5% which management and the shareholders feel is inadequate (note that the initial investment is $21,000,000). For this year, fixed costs and overhead are expected to rise by $740,000 to $16,140,000 and variable non-labour costs will continue to run in the range of 20% (that is, 20 cents for each dollar of sales).
4
Income Statement (Last Year)
Sales $ 35,000,000
Fixed Costs and Overhead ( 15,400,000)
Variable Costs (non-labour) ( 7,000,000)
Union Labour Costs (11,550,000)
_____________
Total Profit $ 1,050,000
Projected Income Statement
Sales $ 36,540,000
Fixed Costs and Overhead ( 16,140,000)
Variable Costs (non-labour) ( 7,308,000)
Union Labour Costs ( 11,550,000 + Increases from Collective Bargaining)
_____________
Total Profit $ ??????

2. NUL is seeking a significant wage increase for both skilled and unskilled workers in an attempt to "catch-up" after the previous agreement. The existing wage and job classification structure is as follows:
Job Class Wage Rate Number of Employees
Unskilled Labourer $17.85/hr. 225
Skilled Tradesperson $21.00/hr. 25
A 1% across-the-board wage increase will cost the company $91,000
2% 182,000
3% 273,000
...... and so on.
Note that the across-the-board increase applies to both skilled and unskilled workers.

3. The union is also seeking an additional 50 cents per hour increase for the skilled workers. Each one cent/hour additional increase to the skilled trades will cost the company $700. In other words, a full 50 cents per hour increase would cost $35,000. Note that this provision for skilled workers is in addition to any across-the-board increase to all workers.